How Philip Hammond’s u-turn from Class 4 NICs rises leaves a £2bn black hole according to KPMG
The black hole from Philip Hammond’s National Insurance U-Turn? Image by Rost9 (via Shutterstock).
Did you see or hear about the budget last week? Over a week ago, the Chancellor of the Exchequer announced a rise in Class 4 NICs. The rise would have affected many self employed persons, from sole traders to people on self-employed contracts. In the space of a week, Chancellor Philip Hammond made a u-turn on the proposed rises.
Within a day of the u-turn, one of the world’s leading accountancy firms, KPMG noticed a black hole. The Chancellor’s backpedalling has created a £2 billion black hole to fill in the next five years. As to how the u-turn will be funded is open to speculation. Philip Hammond said: “[he] sought to reflect more fairly the differences in entitlement in the contributions made by the self-employed”
Immediately after his proposed changes to Class 4 NICs, he fell foul of his own party’s manifesto pledges. In the 2015 Conservative Party manifesto, a freeze on any tax rises was pledged. Not only income tax and VAT, also National Insurance contributions. Later, he said the freeze applied to personal taxation rather than business taxation, thus affecting Class 1 National Insurance contributions.
On the Accountancy Age website, Richard Godman (head of Menzies) was underwhelmed by the u-turn saying:
“The proposed increase in tax for the self-employed was designed to move the tax system closer to being rational, bringing the taxes paid by the self-employed closer to those paid by employees.
“It was however small beer in the scheme of things, so to have back tracked so soon on a small issue doesn’t bode well for when the going gets tough on the bigger issues that are yet to faced, such as Brexit, industrial strategy and housing for example.”
For the Conservative Party, the issue was an embarrassment; especially from a party that has, over the last forty years, championed small businesses. Especially self-employed people and entrepreneurs. From White Van Men to computer consultants, paying in their Class 4 NICs each year.